All Forum Posts by: Ben Lake

Another question I've had, is it worth calling banks/CU's when looking for commercial notes?  I've seen a lot of people say that's a waste of time in most cases but I believe this was more in reference to residential.

Hmm, ok.  Sounds like I have more research to do (not that I mind, learning all this stuff has been part of the fun for me so far!).  I actually have a "virtual office" already at the moment but it's still here in Oregon, not sure that was a purely necessary step to take but I wanted to be able to get listed in business directories and such, and home-addressed businesses are not looked upon with quite the same level of legitimacy as those with a commercial address just in general to the best of my knowledge.  Even though I'm down south a bit I suppose I could do essentially the same thing and create a Washington entity, and then just steer clear of Oregon entirely at least until I manage to pass my lender exam and register with NMLS.

Another question that's popped up for me - I was looking into signing up for a DebtX membership, not even necessarily to buy at least right away but to get some more exposure to what all is out there, and as part of the signup process they require the registrant to confirm accredited investor status (I stopped there in case you're wondering).  Do mortgage notes fall under the designation of Reg D security offerings?  From my reading so far it seems like they could, but on the other hand I keep seeing people talk about purchasing notes who I'm fairly confident are not making $200k/yr or have a net worth of $1M excluding their personal primary residence.  I must either be misinterpreting what all falls under the Reg D umbrella, or perhaps there are other paths to achieving accredited status that I'm unaware of.  Perhaps in the case of DebtX they maintain that criteria due to being a generalized debt marketplace with both secured and unsecured offerings.  I know that the SEC has recently substantially expanded the definition of accredited investors and that one's income and/or net worth are not the only attributes that can be used to meet that designation, but I haven't gotten a solid enough grasp on the exemptions yet to feel like I really understand what all the available paths are.  I would assume that accepting compensation for any involvement in a note transaction at least COULD be argued to constitute the offering of Reg D securities (if indeed that's what they are), and as such I wonder whether I am obligated to verify whether my buyers are in fact accredited.  Only answer if you're comfortable, I totally understand that everything on here is personal opinion and not legal or financial advice, and of course I wouldn't dream of treating it as such.  Maybe this is too deep a rabbit hole for me to dive down so early on but I'm just so curious about all this and want to learn as much as possible.  Or maybe I should switch from Red Bull to beer already as it is New Year's Eve after all...  Apologies if my musings are tiring you guys out, but you seem more interested in discussing this stuff than my fiance is to put it mildly.

 Oof.  Sounds like a less than desirable way to learn that lesson.  If you don't mind expanding on this a bit more, what all were the hoops you had to jump through to achieve compliance?  Did you end up needing a Debt Buyer License, Mortgage Lender License, or both?  Did you have to get bonded as well?

Wow, thank you to everyone for such valuable input!

@Chris Seveney I really appreciate the encouragement, it means a lot coming from someone as experienced and respected as yourself.  The points you mentioned make sense.  I can definitely understand why a seller might not share an abundance of detail with a broker, especially one that they don't already have a history with.  Your suggestions on how best to market a potential deal were extremely helpful in providing actionable steps I can take to provide real value to buyers.

@Andy Mirza I would agree that this seller is not particularly motivated.  They have stated that they are willing to sell this note fairly soon if they receive an attractive offer, but have also expressly said that they don't mind sitting on it either.  I wouldn't go so far as to say that I think they're intentionally being difficult, but if I had a note I really wanted to move I know I would be more forthcoming.

@Tim S. What you said is almost verbatim what the seller said to me when asked about the down payment.  I am new enough to this that I honestly wasn't sure whether that was generally accepted to be true, or if someone was trying to take me for a ride.  It puts my mind at ease to have some third party feedback on this.

@Jay Hinrichs The licensing component is something I've definitely considered.  Whether or not it's actually required I am planning to pursue licensing in the coming months, if nothing else it will be another avenue for learning and should only help my credibility.  I'm curious, though, would that requirement apply based purely on my being located in Oregon?  I ask this because at least in this case, and likely many others, the buyer, seller, borrower, and property are all located in other states.  I've been doing some research into this aspect of the business but I'm unclear on whether those situations would require my compliance with Oregon's licensing requirements, if any.  Certainly I assume that I would be expected to comply with the requirements of the states where the pertinent parties are located, but to the best of my knowledge none of the ones I'm engaged with at the moment require a license for this activity.  Perhaps part of my issue here has been not knowing where to find the information I'm looking for but I will take your suggestion to inquire with the Dept of Corporate Securities.  Thanks!

@Marco Bario Thanks for your input.  I have so far shied away from providing anyone with information based upon my assumptions, mainly because I worry that such information would be perceived as unreliable or lacking in value.  But perhaps my 'assumptions about assumptions' are not correct here.  In this particular instance the seller has told me that they use FCI for all of their loans, so I suppose it would be fairly safe to assume that proper records have been kept even though I have not personally laid eyes on them.

It's great to get all this feedback from the more experienced crowd. I think in light of what everyone has told me this potential deal may not be all that worth it for me to pursue further. The UPB is pretty low and even though I don't have a BPO or anything on the property I know it is in a fairly undesirable area. Combining this with the seller appearing to fairly unmotivated and the low interest rate I don't think they'll be willing to accept a low enough offer to generate the yield most investors would want. If I were buying this note it would have to come at a steeper discount than most performing 1sts go for.

While I'll certainly take what I can get especially starting out, my primary interest is to pursue notes outside the SFH realm. I'm still figuring out how best to get in front of potential sellers but ideally I'd like to go for small to midsize commercial, agricultural, and raw land. I welcome any feedback as to whether or not this would be a worthy use of my time, but from both a regulatory and monetary perspective these seem like preferable targets to me when compared to SFH. I know that larger deals like these typically result in less commission points, but the overall amount to made on a single deal should still significantly exceed the 300 or so dollars I would expect to clear on the note I've been discussing in this post.

I am an aspiring note investor and have decided to start by brokering to build capital.  Since these are common concerns, I should start by mentioning that I have no delusions of getting rich quick, am not misrepresenting myself as a principal buyer/seller, have not paid for any dumb guru courses, etc, in other words I am setting out to do this legitimately and with realistic expectations.  I do not have a formal background in finance but I have done and am continuing to do a lot of independent study, using resources such as several graduate courses offered by MIT's open courseware platform.  I already have a primary buyer lined up who has been established for over 10 years and is A+ accredited by the BBB, and have made contact with a couple of other buyers who have indicated interest in working with me as well, so I've got some options.

Now that I've gotten that out of the way... here is the issue I'm facing. I've made contact with a prospective seller who has asked me to help sell a performing 1st SFH. The thing is, it's been like pulling teeth to get details from them, and they seem flat out unable to provide at least a couple of figures that as far as I'm aware are quite crucial to even receiving an indicative offer. They say they do not have record of the original down payment, and have provided way too wide a range of possible property value figures to be of any practical use. The tax assessed value of the property is well below the bottom of the range they gave me, and even though the state the property is in does limit tax assessed value increases based on inflation, the numbers seem pretty out of whack to me.

I'm finding myself at a crossroads now, wondering if I should just politely tell the seller that I can't provide the standard of service to buyers that I hold myself to based on the information they have or are willing to give me, or keep pushing for more information.  I have not been provided with any actual documents so far either, and rather than offer to have me sign an NDA when I asked for documentation the seller just told me that they would only be willing to provide that upon receipt of an indicative offer.  I have tried in good faith to find a buyer for this note, but after the follow-up questions I've received I fear my suspicions about this seller not providing nearly enough info are being confirmed.  I don't want to shoot myself in the foot by burning a bridge with the seller if my expectations are off-base, but I don't want to be made a fool of either.  As we know, the note space is not that big and it doesn't take much to be marked with the dreaded branding of "joker broker", and this is the last thing I want to be.  I truly do want to provide a valuable service for any buyers I work with, so I'm concerned that trying to sell a note with what seems like at best very sparse information will not do me any favors. 

Am I being oversensitive here?  Anyone with experience in this area is more than welcome to chime in, I'd be very interested to hear your thoughts on how to navigate this situation.

Thanks in advance, and happy new year to all!

@David Putz Just to clarify, do you mean someone who inherits a home and then sells it via owner carry?  And then they need to cash out urgently for some reason?  I would think there are probably lots of people in situations like that but who have no idea that they can sell their note or how to go about it; is it common in your experience for these people to go post their notes online or shop them around to investors?  Just like any other investment area I have no doubt that motivated sellers are a great source of deals, it's just a matter of identifying those people and getting to them before everyone else does and getting lost in a bidding war, correct?

Something else to consider, you might be better positioned than most to find distressed properties in your local area given your current occupation as an LEO.  I don't know much about law enforcement but my guess would be that you wind up visiting a lot of places that fit that description if you're out in the field.  Not that you could or should be posting door hangers or anything like that while you've got the local axe murderer in cuffs, but seeing distressed properties up-close like I imagine you do fairly regularly should give you an idea of some places you or your wife could start prospecting on your personal time.  Even if you don't plan to purchase property to rent in your local area, you could potentially do some wholesale deals to help build capital in the beginning as others here have mentioned. 

Beyond that, I'm assuming your job has forced you to develop a pretty solid knowledge of your county, where good and bad areas are, crime stats and demographics for various areas, things like that.  Of course I'm sure your department has an ethics code that you'd need to be mindful of, but a lot of this knowledge would available to anyone if they chose to look for it, it's just that officers/deputies on patrol tend to have a better lay of the land than most people because the job demands it.  This is why a lot of investors will recruit postal carriers, UPS drivers, Uber drivers, and the like to help them prospect for deals.  These people drive all over the place all day everyday, so of course they're more likely to come across distressed houses than someone who just drives to work and maybe around town for some errands.

I've done a little bit of research on this topic as churches seem to coming onto the market at cheaper and cheaper prices these days, and I think as many others have stated here that is because they're usually hard to monetize.  They are purpose-built structures and serve their intended purpose very well, but because of that they are pretty difficult to convert for other uses. 

Having said that, just to throw my hat in the ring with another off-the-wall idea, it's occurred to me that some churches could be spacious enough to house a small data center.  I think the biggest bottleneck there would be electricity requirements - most churches probably don't have the juice to support such an operation and the renovations required to get you there would be costly no doubt, and possibly not feasible depending on the building.  Still, fun stuff to think about!

@Sean Mcintire Thanks! That looks like a promising resource for sure.

@Sanden Leavers If I'm understanding this correctly, it sounds like the people you want to purchase the townhouse from have not finished paying off the loan they took out when they bought it, and if this is the case then they would not really be in a position to offer you owner financing.  Owner financing works by essentially making the seller of an asset act as a bank; rather than have the buyer use cash or a loan of their own to pay the seller the agreed upon price for the asset at the front end, the seller agrees to accept payments in installments from the buyer in much the same way that buyer would pay a bank or other lender if they were to get their own loan.  If the people you want to purchase this townhouse from have not paid off their own loan yet then they will not have the ability to enter into this arrangement with you until they have finished paying.

There are a number of reasons why seller financing can be a good option, most commonly because the buyer can't qualify for a big enough loan to cover the purchase, or because the property itself is considered too risky by banks and possibly other private lenders as well.  Sometimes both of those issues are present, in which case seller financing can be the only real alternative to a cash purchase.  You will pay a higher interest rate than with a bank loan, but often not as high as a private hard money loan, although that can vary on a case-by-case basis.

If I can ask, is there a particular reason why you are interested in this property specifically?  Do you have a personal relationship with the owners?  I'm also not sure based on the wording of your question whether your intention is to occupy this home yourself or to purchase it as an investment.  In either case, have you looked at any other properties that might meet the requirements you're looking for?  If you can find another similar property that meets your requirements you may very well be able to structure a good seller finance deal if the property is owned outright, it just depends on a lot of things, not the least of which would be the seller's willingness to entertain that as a possibility.  If you want more information on how to structure a seller financed deal in a way that could make it more attractive to the seller, PM me and I would be happy to share some more detailed information on that with you.